Video: Bill Emmott's 'Good Italy, Bad Italy - Girlfriend in a Coma' (Full Video)

Lies, damned lies, and statistics: Spanish and Greek youth unemployment much lower than reported

One of the most commonly cited Eurozone crisis statistics over the past several years has been youth unemployment, which in hard hit countries such as Spain and Greece has been reported to be as high as 50%.

In a recent post over at Project Syndicate Steven Hill dissects Eurostat's unemployment rate methodology and comes up with markedly different figures:

Unemployment estimates also are surprisingly misleading – a serious problem, considering that, together with GDP indicators, unemployment drives so much economic-policy debate. Outrageously high youth unemployment – supposedly near 50% in Spain and Greece, and more than 20% in the eurozone as a whole – makes headlines daily. But these numbers result from flawed methodology, making the situation appear far worse than it is. 

The problem stems from how unemployment is measured: The adult unemployment rate is calculated by dividing the number of unemployed individuals by all individuals in the labor force. So if the labor force comprises 200 workers, and 20 are unemployed, the unemployment rate is 10%. 

But the millions of young people who attend university or vocational training programs are not considered part of the labor force, because they are neither working nor looking for a job. In calculating youth unemployment, therefore, the same number of unemployed individuals is divided by a much smaller number, to reflect the smaller labor force, which makes the unemployment rate look a lot higher.

So what we have here is a simple division problem: the unemployment numerator is accurate, but the labor force denominator has been fudged.

What are the real youth unemployment figures in countries like Spain and Greece?

The youth unemployment ratio – the number of unemployed youth relative to the total population aged 16-24 – is a far more meaningful indicator than the youth unemployment rate. Eurostat, the European Union’s statistical agency, calculates youth unemployment using both methodologies, but only the flawed indicator is widely reported, despite major discrepancies. For example, Spain’s 48.9% youth unemployment rate implies significantly worse conditions for young people than its 19% youth unemployment ratio. Likewise, Greece’s rate is 49.3%, but its ratio is only 13%. And the eurozone-wide rate of 20.8% far exceeds the 8.7% ratio.

Certainly these much lower youth unemployment figures are still a matter for serious concern. And as Hill notes later in his post it is likely that at least a significant portion of young people who are in school are there because they cannot find work.

There is, however, a substantive difference between the 50% shock headline figures and the real picture of youth unemployment, and this difference may explain why we have not seen a full-on revolution in countries like Greece or Spain (at least not yet).

The final question is why has the media only reported the much larger youth unemployment figures and not the arguably more meaningful, lower youth unemployment ratio? Certainly the larger figure is much more sensational and attention grabbing.

At the risk of sounding conspiratorial, another way of asking this question is who benefits by reporting the larger figure? Undoubtedly larger figures aid the narrative of the pro-bailout and pro-stimulus, anti-austerity contingent. 50% youth unemployment sounds pretty drastic, and drastic times call for drastic measures.

As they say, "never waste a good crisis".

Video: The Great Euro Crisis (BBC)

A good series of interviews for understanding why many Greeks (and Germans) still prefer that Greece keep the euro rather than return to its previous currency, the drachma. 

Self-confessed Eurosceptic Michael Portillo visits debt-stricken Greece. He believes that the euro crisis must have shaken the Greeks' faith in Europe's single currency and wonders if there'll be a desire to revert to the free-floating drachma. In Athens he meets everyone from a destitute young family to the former finance minister and the outgoing Prime Minister, and is surprised by some of their answers. Meanwhile in Germany, Europe's economic powerhouse, Michael encounters the taxpayers who are paying most towards Greece's mammoth financial bailout while having to watch angry Athenians burning the German flag.

On The Problem With Postponing the Inevitable

Today's Eurogeddon must read.

Lagarde Sacrifices Herself to Help Greece's Pro-Bailout New Democracy Party?

The Eurogeddon chess game is getting desperate so don't be surprised to see a few political/PR curveballs over the next few weeks in front of the 17 June Greek election runoff.

Case in point is this weekend's snarky comment from the typically ladylike Madame Lagarde. But before we get to that, some background:

The single worst thing than can happen from the perspective of the Troika (the IMF, EU, and ECB) and Greek elites right now is for Syriza and its 37-year old leader, 'Sexy Alexis', as he's now being called, to do well in the 17 June Greek election runoff.

In the most recent May elections Greek voters turned away from the two pro-bailout/austerity parties, PASOK and New Democracy, as they were seen as tools of the Troika. This rejection by voters sent a shiver up the Troika's spine as they know that should Syriza and Alexis Tsipras prevail he will likely walk away from the terms of the bailout and thereby call the Troika's bluff to either a) cut off Greece's banking system from further ECB funding or b) terminate any further bailout money to Greece's government. Either one of these moves will likely trigger a financial panic and spoil everyone's summer vacation plans.

So the Troika are now desperate to see PASOK and or New Democracy do better in the 17 June election. So how can they help them?

Agent Provocateur: Christine Lagarde, IMF Chief

Angry Greek voters are looking for someone to blame, and as long as PASOK and New Democracy are seen as part of the problem it's unlikely that voters will put them back into power. So one strategy is to try and reshift the political blame onto the external Troika, which would have the effect of diverting negative feelings away from PASOK and New Democracy. This would help the two pro-bailout Greek parties reposition themselves as domestic victims rather than as co-conspirators with the hated foreigners.

And now you understand why the typically politie Christine Lagarde, head of the IMF, probably deliberately roiled the Aegean kettle this weekend with a comment about how it's 'payback time', and Greeks need to pay their taxes.

Queue the Greek firestorm.

And lo and behold, New Democracy, who of course along with PASOK quickly denounced Lagarde's rhetoric, is again rising in the polls.

Nice move, Troika.

And, by the way, Lagarde doesn't pay any taxes on her $551,700 in annual compensation.

Greece QOTD: "Papadreou was clueless. Papademos was complicit. Where does blame really lie?"

Atta boy, AEP.

Greece Can Physically Print Its Own Euros In Spite Of ECB 'Choke' Efforts

Euro printing press

As the long ago predicted Greek 'bank jog' accelerates there is much talk in the econoblogosphere of the Greek banking system being 'choked off' by the ECB.

If this is in fact the Brussels/Frankfurt plan to force Greece out of the euro there is a perhaps not insignificant obstacle to this strategy: as noted in this post last year, Greece has its own euro printing press. 

The ECB does not print any euro banknotes but actually assigns this task to local member country central banks, with the ECB instructing the local central bank how much of which denominations to print.

So what does this mean?

In opinion polls Greeks want two things: a) to default on their sovereign debt less fiscal austerity and b) stay in the Eurozone. However, European elites (read: Germany) are saying to Greece that you can't have both. But is Germany correct?

An important point to keep in mind here is that there is no legal mechanism to force Greece to drop the euro and readopt the drachma. Hence the idea of choking off the Greek banking system and forcing the Greeks to renounce the euro versus organizing some type of formal action, such as a vote to eject Greece from the euro, which would not be allowed under current EU law.

But in the event of a full-fledged run on Greece's banking system, where Greek banks literally have no cash on hand to give to depositors, it would seem reasonable and (crucially) perhaps legal for the Greek central bank to start printing euro notes even if the ECB disavows this action.

If this were to take place is there anything the ECB could do to stop the Greek central bank from printing euros? Probably not.

It's hard to imagine the situation reaching a stage where the Greek central bank openly revolts against the ECB and starts printing euros. However, Greece need only hint at playing this card for it to have the desired effect, which is to force the ECB to continue accepting Greek bank collateral on reasonable terms. In other words, the fact the Greeks can print their own euros nullifies the ECB's ability to choke the Greek banking system into submission and force a 'voluntary' abandonment of the euro.

Your move, Angela.

Video: Raghuram Rajan, Niall Ferguson, etc. on The Future of Capitalism

This video from the Milken Institute Conference unfortunately appears to begin after the panel has already begun and cuts abruptly, but still features a very good discussion of economic issues in the U.S., Asia, and Europe.

Soros: Euro crisis "more serious and more threatening than the crash of 2008"

Link here.

Eurozone QOTD: "You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks"

Quote is from Bridgewater, which with an estimated $122 billion in assets under management is the world's largest hedge fund.

Previously Bridgewater founder Ray Dalio said he didn't expect the next major crisis to hit until 2013, but it appears his firm is positioned for a rocky 2012.

As the Euro Rolls Over, Why Hasn't Gold Rocketed?

In early May of this year, with the euro hovering in the $1.46-$1.48 range, I disagreed vehemently with euro bulls such as portfolio manager Axel Merk who argued that the common currency was no longer vulnerable to a sell-off (see Merk's May 11 FT article titled 'Dollar in graver danger than the euro' and my counter arguments here, here, and here). 

Merk's argument was basically that in 2010, when the euro sank to a low of $1.18, the currency served as a proxy for the sovereign debt crisis. Now, however, investors were shorting sovereign debt directly and, according to Merk, recognized that it is a lot harder for the ECB to print euros than it is for the Fed to print dollars.

For awhile, as you can see from the below chart, it appeared that Merk perhaps had made a good point. From May the euro has shown remarkable resilience; for the last six months one sovereign after another has white knuckled its way through uncertain debt auctions and ever higher interest expense. Meanwhile the ECB kept its 'bazooka' semi-holstered with purchases of sovereign debt apparently capped at €20 billion per week. While the euro did soften from mid-May onwards it was able to keep it's head above the $1.40 mark for the summer and a good chunk of autumn.

Click to enlarge

Continue reading the full article at Seeking Alpha here.

Jeremy Grantham's Full December 2011 Quarterly Letter

JGLetter_ShortestLetterEver_3Q112

Video: Niall Ferguson on Charlie Rose

Video of Niall discussing his new book, Civilization, as well as his current views on the European debt crisis, Turkey's resurgence, and Iran's future here.

Video: Hitler Reacts to S&P's Downgrade of 15 Eurozone Countries

Greece Has Its Own Banknote Printing Facility; Ireland Mulls Boosting Its

From the WSJ:

Most euro-zone central banks maintain at least limited capacities to print bank notes. While the European Central Bank is responsible for determining the euro zone's supply of bank notes, it doesn't actually print them. The ECB outsources the work to central banks of euro-zone countries. Each year, groups of countries are assigned the task of printing millions of bank notes in specific denominations. 

The countries have different arrangements for printing their shares of the notes. Some, like Greece and Ireland, own their printing presses. Others outsource to private companies. 

The assignments vary from year to year. Last year, Ireland printed 127.5 million €10 notes, and nothing else, according to its annual report. This year, it was among 11 countries assigned to print a total of 1.71 billion €5 notes.

Full story here.

Video: SNL's A Closer Look at Europe

A Closer Look At Europe, SNL S37E05, Greece, Germance from Sandy Sandcake on Vimeo.

Video: Barry Eichengreen on Europe's Never Ending Crisis

Recommended links & Photo of the Week

Coming soon to a Eurozone bank near you?

1. Beware of falling masonry (Economist) Good tactical overview of the eurozone crisis and some of the options being considered. See also 'Banks Build Contingency for Breakup of the Euro' (NYT)

2. Latvian bank Krajbanka set to be wound up (AFP) Above bank run image is of Krajbanka.

3. The Rise and Fall of Bitcoin (Wired) Contrary to the title I don't think this is the last we've heard of Bitcoin, or other virtual currencies, but an interesting and informative read nonetheless.

4. Prepare for riots in euro collapse, UK Foreign Office warns (Telegraph)

5. Why Not Break-Up Citigroup? (Simon Johnson) Citibank has blown-up and required a bailout three times in the last three decades, or once on average every ten years.

6. How could Reebok sell trainers for $1? (BBC) Contrary to popular believe it's not all glum news here at TPC. I was able to see the remarkable Nobel Peace Prize winner Professor Muhammad Yunus speak this week (video below). His bank, Grameen, is doing amazing things and gets a BHAG nod.

7. MF’s Missing Money Makes You Wonder About Goldman (Jonathan Weil)

Eurozone Debt Crisis is the IMF's Responsibility, Not the ECB's

Marc Chandler hits the nail on the head.

The IMF, which is funded by other sovereign countries, was invented precisely for dealing with problems like the current Eurozone debt debacle. The IMF is the proper lender of last resort to sovereign countries, not the central bank.

Central bank lending to sovereigns often ends in debt monetization and hyperinflation. There are sound reasons behind German stubbornness against turning the ECB into a 'bazooka'.

More on this topic, including why the 'experts' with near unanimity are calling on the ECB rather than the IMF, here.

Quote of the Day: On the Megabank-Government-Central Bank Axis

Portuguese President Anibal Cavaco Silva is calling for the ECB to go beyond just being a lender of last resort to banks and to become one for his and other European governments. Specifically, he's calling on the ECB to make "unlimited" purchases of EU sovereign debt. This may be the first time one of Europe's leaders has publicly asked the ECB to take this step.

Would such a move by the ECB be a sound one? From a recent editorial in the FT:

"If governments stand behind banks and banks stand behind governments and the central bank lends freely to both and also underwrites financial markets, then financial asset prices become completely detached from economic reality. In this “system”, the central bank implementing more quantitative easing is no different, in economic terms, from Bernie Madoff marking up his client accounts every month."

From 'Circular commitments lead to a Ponzi economy'.

More on the distinction between what is meant by being a lender of last resort to banks versus the governments here and why lender of last resort to sovereign countries is the proper role for the IMF.